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Sri Lanka corporate earnings to recover from 4Q19

ECONOMY NEXT | 05.07.2019

Earnings of Sri Lanka’s listed firms are expected to improve from the fourth quarter of 2019 as the country recovers faster than expected from the Easter Sunday attacks, the research arm of First Capital, an investment house said.

“Despite the Easter Sunday attacks Sri Lanka’s economic outlook has shown signs of resilience and ability to recover quickly as economic activities were seen returning to normalcy while removal of travel advisories were faster than anticipated,” Research Head Dimantha Matthew said.

“Though the unfortunate attacks and the subsequent events are likely to have directly or indirectly impacted all sectors affecting earnings of most companies, we believe that the impact has now been factored into the market and an accelerated recovery is more likely than not,” he said.

“The heavy decline in interest rates is expected to lower finance costs, thereby improving earnings of most listed entities towards 4Q2019.”

He said stocks are becoming more attractive as bond yields are moving downwards following Sri Lanka’s 2 billion sovereign bond sale which was oversubscribed and showed investor confidence.

Bond yields are likely to remain low due to current inflation, credit growth, liquidity and reserves, he said.

With the central bank ceiling on fixed deposit rates linked to gilt yields, investors are likely to turn towards the equity market, Matthew said.

“Lower fixed income returns may lead investors to hunt for alternative investment options with higher returns, of which equity investments is likely to be a more probable option considering the current attractive valuations,” he said.

The market price to earnings ratio was a 8.7 multiple on Thursday.

“Thereby we expect an improvement in demand for stocks leading to a possible re-rating of the market,” Matthew said.

First Capital is an investment bank offering services as Stock Brokers in Sri Lanka. The Company acts as a conduit between retail and institutional clients and the secondary market of the Colombo Stock Exchange. First Capital’s best-in-class research team provide a series of actionable trade recommendations, daily and periodic market commentaries and publications for Stock Brokers in Sri Lanka.

First Capital is an investment bank providing a full range of financial advisory and services. The Company’s research delivers a heightened perspective in fundamental research aiding Share Market Investment in Sri Lanka. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis. With fundamental research coverage of 62 listed securities (reflecting approximately 65% market capitalization) across 15 sectors in Share Market Investment in Sri Lanka.